UPDATE 1-China CITIC Bank hopeful on '09, frets on loan book

BEIJING, April 29 - China CITIC Bank Corp Ltd, the country's seventh-largest lender, is optimistic about this year's earnings outlook and is reining in loan growth to safeguard against a rise in bad loans.

Chief Executive Chen Xiaoxian said the bank would adopt stricter loan checks and had sent inspectors to those branches that had recorded a surge in discounted bill financing in the first quarter.

"Banks need to take more forceful actions to increase risk controls," he told reporters.

Chen was speaking a day after the banking flagship of China's top financial conglomerate, CITIC Group, reported that net profit last year rose 61 percent to 13.32 billion yuan ($1.95 billion).

"Although there are many difficulties, I'm still optimistic about our earnings outlook," Chen said. "The core aim is to beat the general market," he said of the bank's objective.

Total lending by Chinese banks in the first quarter reached a record 4.58 trillion yuan, close to the government's minimum target for the whole year of 5 trillion yuan.

Asked about his top concern, Chen said: "Of course, it is asset quality given such fast loan growth."

Chen called the surge unsustainable. He did not disclose how much CITIC Bank had lent in the first three months, but he said the pace would slow.

"No matter how complicated your businesses are, you must clearly know the default rate," he said of lessons learned from the global financial crisis.

Vice-President Wu Beiying said most of CITIC Bank's loans so far this year had been channeled to government-backed investment projects or to the rail, road, telecoms and energy sectors.

The bank had not seen strong loan demand from small firms, exporters and the engineering industry, he added.

Wu said CITIC Bank's non-performing loan ratio had dropped further in the first quarter after declining to 1.36 percent at the end of December from 1.48 percent at the end of 2007.

"We are confident about our overall asset quality," he said.

Wu did not give a specific NPL ratio for the end of the first quarter but said most of the bank's bad loans were in the Yangtze River Delta.

Assistant President Cao Guoqiang said the bank's net interest margin was bottoming out and may widen again later in the year as long as there was no further cut in official interest rates.

CITIC Bank's net interest margin shrank to 2.89 percent at the end of last year from 3.42 percent at the end of March 2008. He did not disclose a figure for the end of the first quarter.

The bank's net income rose 38 percent last year to 36.09 billion yuan, while net fee and commission income increased 46 percent to 3.04 billion yuan. Outstanding loans in 2008 rose 15.6 percent to 660 billion yuan.